UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10738
ANNTAYLOR STORES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3499319
- ------------------------------- -------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 West 57th Street, New York, NY 10019
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(212) 541-3300
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
-- -----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Outstanding as of
Class August 29, 1997
----------------------------- ------------------
Common Stock, $.0068 par value 25,637,853
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INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters and Six Months Ended
August 2, 1997 and August 3, 1996...................... 3
Condensed Consolidated Balance Sheets at
August 2, 1997 and February 1, 1997.................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 2, 1997 and
August 3, 1996......................................... 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Operations.... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders... 15
Item 6. Exhibits and Reports on Form 8-K...................... 16
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<PAGE 3>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Six Months Ended August 2, 1997 and August 3, 1996
(unaudited)
Quarters Ended Six Months Ended
-------------------- --------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- -------- --------
(in thousands except per share amounts)
Net sales.......................... $184,999 $187,862 $382,063 $372,329
Cost of sales...................... 99,645 107,115 198,073 208,428
------- ------- ------- -------
Gross profit 85,354 80,747 183,990 163,901
Selling, general and
administrative expenses.......... 73,733 70,029 150,370 140,283
Amortization of goodwill........... 2,760 2,376 5,520 4,753
------- ------- -------- -------
Operating income................... 8,861 8,342 28,100 18,865
Interest expense................... 5,027 6,210 10,573 12,331
Other expense (income), net........ 25 (293) 275 (424)
------- ------- -------- -------
Income before income taxes......... 3,809 2,425 17,252 6,958
Income tax provision............... 2,824 1,798 9,792 4,519
------- ------- -------- -------
Income before extraordinary loss... 985 627 7,460 2,439
Extraordinary loss (net of income
tax benefit of $130,000)......... (173) --- (173) ---
------- ------- ------- -------
Net income......................... $ 812 $ 627 $ 7,287 $ 2,439
======= ======= ======= =======
Net income per share of common stock:
Income per share before
extraordinary loss.......... 0.04 0.03 0.29 0.11
Extraordinary loss per share.. (0.01) --- (0.01) ---
------- ------- ------- -------
Net income per share.......... $ 0.03 $ 0.03 $ 0.28 $ 0.11
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 4>
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
August 2, 1997 and February 1, 1997
August 2, February 1,
1997 1997
-------- ----------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash and cash equivalents............... $ 25,751 $ 7,025
Accounts receivable, net................ 58,212 63,605
Merchandise inventories................. 88,855 100,237
Prepaid expenses and other
current assets........................ 24,342 25,653
------- -------
Total current assets.................. 197,160 196,520
Property and equipment..................... 221,596 209,081
Less accumulated depreciation and
amortization........................ 78,098 65,648
------- -------
Net property and equipment............ 143,498 143,433
Goodwill, net.............................. 336,259 341,779
Deferred financing costs, net.............. 1,848 2,743
Other assets............................... 3,623 3,664
------- -------
Total assets.......................... $682,388 $688,139
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable......................... $ 41,387 $ 34,341
Accrued expenses......................... 45,226 43,042
Current portion of long-term debt........ 824 287
------- -------
Total current liabilities.............. 87,437 77,670
Long-term debt.............................. 105,727 130,905
Deferred income taxes....................... 4,872 4,872
Other liabilities........................... 8,950 7,952
Commitments and contingencies
Company-Obligated Mandatorily
Redeemable Convertible
Preferred Securities of AnnTaylor
Finance Trust Holding Solely
Convertible Debentures................... 96,275 96,158
Stockholders' equity
Common stock, $.0068 par value;
40,000,000 shares authorized;
25,649,454 and 25,598,489 shares
issued, respectively.................... 174 174
Additional paid-in capital................ 350,531 349,545
Warrants to acquire 2,814 shares
of common stock......................... 46 46
Retained earnings......................... 29,783 22,613
Deferred compensation on restricted
stock................................... (1,201) (1,590)
------- -------
379,333 370,788
Less treasury stock, 11,601 shares,
at cost................................. (206) (206)
------- -------
Total stockholders' equity........... 379,127 370,582
------- -------
Total liabilities and
stockholders' equity...............$682,388 $688,139
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 5>
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended August 2, 1997 and August 3, 1996
(unaudited)
Six Months Ended
----------------------
August 2, August 3,
1997 1996
--------- ---------
(in thousands)
Operating activities:
Net income.................................... $ 7,287 $ 2,439
Adjustments to reconcile net income
to net cash provided by
operating activities:
Extraordinary loss.......................... 303 ---
Equity earnings in CAT...................... --- (760)
Provision for loss on accounts receivable... 909 835
Depreciation and amortization............... 13,976 12,358
Amortization of goodwill.................... 5,520 4,753
Amortization of deferred financing costs.... 775 780
Amortization of deferred compensation....... 530 16
Loss on disposal of property and equipment.. 191 220
(Increase) decrease in:
Receivables............................... 4,484 5,448
Merchandise inventories................... 11,382 3,454
Prepaid expenses and other current assets. 1,311 (641)
Increase (decrease) in:
Accounts payable.......................... 7,046 (6,797)
Accrued expenses.......................... 1,955 (2,695)
Other non-current assets and
liabilities, net........................ 1,037 707
------- -------
Net cash provided by operating activities..... 56,706 20,117
Investing activities:
Purchases of property and equipment........... (14,000) (5,059)
------- -------
Net cash used by investing activities......... (14,000) (5,059)
Financing activities:
Net repayments under revolving credit
agreement.................................... --- (97,000)
Net repayments under term loan.................(24,500) ---
Term loan prepayment penalty................... (184) ---
Payments on mortgage........................... (141) (131)
Net proceeds from issuance of Preferred
Securities................................... --- 95,985
Exercise of stock options...................... 845 155
Net repayments under receivables facility...... --- (14,000)
Payment of financing costs..................... --- (63)
------- -------
Net cash used by financing activities..........(23,980) (15,054)
------- -------
Net increase in cash............................ 18,726 4
Cash and cash equivalents, beginning of period.. 7,025 1,283
------- -------
Cash and cash equivalents, end of period.......$ 25,751 $ 1,287
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest.......$ 10,103 $ 11,395
======= =======
Cash paid during the period for income taxes...$ 12,682 $ 3,405
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 6>
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
---------------------
The condensed consolidated financial statements are unaudited
but, in the opinion of management, contain all adjustments (which
are of a normal recurring nature) necessary to present fairly the
financial position, results of operations and cash flows for the
periods presented. All significant intercompany accounts and
transactions have been eliminated.
The results of operations for the 1997 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The February 1, 1997 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor Stores Corporation.
Certain fiscal 1996 amounts have been reclassified to conform
to the 1997 presentation.
Detailed footnote information is not included for the periods
ended August 2, 1997 and August 3, 1996. The financial
information set forth herein should be read in conjunction with
the Notes to the Company's Consolidated Financial Statements
contained in the AnnTaylor Stores Corporation 1996 Annual Report
to Stockholders.
2. Income Per Share
----------------
Net income per share is calculated by dividing net income by
the total of the weighted average number of common shares and
common share equivalents outstanding, assuming the exercise of
outstanding warrants and the dilutive effect of outstanding stock
options, computed in accordance with the treasury stock method.
The number of shares used in the calculation was as follows:
Quarters Ended Six Months Ended
------------------- ------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ---------
(in thousands)
Common shares.......... 25,631 23,097 25,616 23,091
Warrants............... 3 32 2 34
Stock options.......... 165 108 164 101
------ ------ ------ ------
25,799 23,237 25,782 23,226
====== ====== ====== ======
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<PAGE 7>
Fully diluted income per share, assuming the conversion into
common stock of the 8-1/2% Convertible Trust Originated Preferred
Securities, is not presented for the quarter and six months ended
August 2, 1997 or August 3, 1996, as there is no dilutive effect
of the assumed conversion.
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which specifies the computation,
presentation and disclosure requirements for basic and diluted
earnings per share. This statement is effective for financial
statements for periods ending after December 15, 1997. The
Company has determined that this statement will have no material
effect on the Company's reported earnings per share.
3. Long-Term Debt
--------------
The following summarizes long-term debt outstanding at August
2, 1997:
(in thousands)
8-3/4% Notes....................... $100,000
Mortgage........................... 6,551
-------
Total debt...................... 106,551
Less current portion............... 824
-------
Total long-term debt............ $105,727
=======
On July 2, 1997, the Company used available cash to prepay
the outstanding balance of its $24,500,000 term loan due
September 1998. This loan repayment resulted in an extraordinary
charge to earnings of $173,000, net of income tax benefit, or
$0.01 per share.
On July 29, 1997, AnnTaylor Global Sourcing, Inc. amended
its credit facility with the Hongkong and Shanghai Banking
Corporation Limited, increasing the commitment available for
letters of credit under the facility to $50,000,000 and extending
the maturity date of the facility to January 30, 1998.
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<PAGE 8>
4. Supplementary Data
------------------
The following unaudited proforma condensed consolidated
operating data for the quarter and six months ended August 3,
1996 have been presented to give effect to the acquisition of the
Company's sourcing subsidiary, which was consummated in September
1996 (the "Sourcing Acquisition"), as if it had occurred at the
beginning of such periods:
Quarter Ended Six Months Ended
August 3, 1996 August 3, 1996
---------------- ------------------
Actual Proforma Actual Proforma
------ -------- ------- ---------
(in thousands, except per share amounts)
Sales....................... $187,862 $187,862 $372,329 $372,329
Net income.................. $ 627 $ 1,791 $ 2,439 $ 4,766
Net income per share........ $ .03 $ .07 $ .11 $ .19
Weighed average shares
outstanding.............. 23,237 25,585 23,226 25,574
The proforma data set forth above does not purport to be
indicative of the results that actually would have occurred if
the Sourcing Acquisition had occurred at the beginning of the
periods presented or of results which may occur in the future.
5. Recently Issued Statements of Financial Accounting Standards
------------------------------------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which requires that changes in
comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements.
This statement is effective for periods beginning after December
15, 1997. The Company has determined that this statement will
have no material effect on the Company's financial statements.
Also, in June 1997, the FASB issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related
Information", which addresses segment reporting, including, where
applicable, requirements to report selected segment information
quarterly and provide entity-wide disclosures about products and
services, major customers, and the material countries in which
the entity holds assets and reports revenues. This statement is
effective for financial statements for periods beginning after
December 15, 1997. Management currently is evaluating the
effects of this change on the Company's financial statements.
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<PAGE 9>
Item 2. Management's Discussion and Analysis of Operations
---------------------------------------------------
Results of Operations
- ---------------------
Quarters Ended Six Months Ended
------------------- -------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ----------
Number of Stores:
Open at beginning of period....... 311 307 309 306
Opened during period.............. 7 1 9 5
Expanded during period*........... 1 1 1 1
Closed during period.............. 8 2 8 5
Open at end of period............. 310 306 310 306
Type of Stores Open at End
of Period:
AnnTaylor Stores............... 268 257
AnnTaylor Factory Stores....... 10 9
AnnTaylor Loft stores.......... 31 31
AnnTaylor Studio stores........ 1 9
- ------------------
* Expanded stores are excluded from comparable store sales
for the first year following expansion.
Quarter Ended August 2, 1997 Compared to Quarter Ended August 3, 1996
- ----------------------------------------------------------------------
The Company's net sales in the second quarter of 1997
decreased to $184,999,000 from $187,862,000 in the second quarter
of 1996, a decrease of $2,863,000 or 1.5%. Management believes
that the decrease in net sales was principally attributable to
the Company's lower promotional inventory position during the
period, and, to a lesser extent, lower customer acceptance of
certain of the Company's second quarter merchandise offerings.
Comparable store sales for the second quarter of 1997 decreased
3.6% compared to the second quarter of 1996, due principally to
the same factors. On a per square foot basis, inventories were
29.6% lower at the end of the second quarter of 1997 than at the
end of the second quarter of 1996, excluding inventories
associated with AnnTaylor Global Sourcing.
Gross profit as a percentage of net sales increased to 46.1%
in the second quarter of 1997 from 43.0% in the second quarter of
1996. This increase was primarily attributable to increased
initial markups resulting from the Sourcing Acquisition.
Selling, general and administrative expenses were $73,733,000,
or 39.9% of net sales in the second quarter of 1997, compared to
$70,029,000, or 37.3% of net sales in the second quarter of 1996.
The increase in operating expenses as a percentage of net sales
was primarily the result of decreased leverage on fixed expenses
as a result of negative comparable store sales. The increase in
expense dollars was primarily attributable to increased tenancy
and store payroll expense related to increased retail square
footage.
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<PAGE 10>
As a result of the foregoing, the Company had operating income
of $8,861,000, or 4.8% of net sales, in the second quarter of
1997, compared to operating income of $8,342,000, or 4.4% of net
sales, in the second quarter of 1996. Amortization of goodwill
was $2,760,000 in the second quarter of 1997 and $2,376,000 in
the second quarter of 1996. Operating income, without giving
effect to goodwill amortization in either year, was $11,621,000,
or 6.3% of net sales, in the 1997 period and $10,718,000, or 5.7%
of net sales, in the 1996 period.
Interest expense was $5,027,000 in the second quarter of 1997
and $6,210,000 in the second quarter of 1996. The decrease in
interest expense is attributable to reduced outstanding
indebtedness in the second quarter of 1997 compared to the second
quarter of 1996.
The income tax provision was $2,824,000, or 74.1% of income
before income taxes and extraordinary loss, in the second quarter
of 1997 compared to $1,798,000, or 74.1% of income before income
taxes, in the second quarter of 1996. The effective income tax
rate for both periods differed from the statutory rate primarily
because of non-deductible goodwill amortization.
On July 2, 1997, the Company used available cash to prepay the
outstanding balance of its $24,500,000 term loan due September
1998. This loan repayment will result in annualized interest
expense savings of approximately $2,200,000, and resulted in an
extraordinary charge to earnings in the second quarter of $0.01
per share.
As a result of the foregoing factors, the Company had net
income of $812,000, or 0.4% of net sales, for the second quarter
of 1997 compared to net income of $627,000, or 0.3% of net sales,
for the second quarter of 1996.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
Six Months Ended August 2, 1997 Compared to Six Months Ended
- ------------------------------------------------------------------
August 3, 1996
- --------------
The Company's net sales in the first six months of 1997
increased to $382,063,000 from $372,329,000 in the first six
months of 1996, an increase of $9,734,000 or 2.6%. The increase
in net sales was attributable to an increase in sales during the
first quarter of 1997 compared to the first quarter of 1996,
resulting from the opening of new stores and the expansion of
existing stores as well as positive customer reaction to the
Company's first quarter merchandise offerings, offset by the
decrease in sales during the second quarter of 1997 for the
reasons described above.
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<PAGE 11>
Comparable store sales increased 0.4% for the first six months of
1997 compared to the first six months of 1996, reflecting a
comparable store sales increase of 4.4% in the first quarter of
1997, offset by a comparable store sales decrease of 3.6% in the
second quarter of 1997 compared to the same periods in the prior
year.
Gross profit as a percentage of net sales increased to 48.2%
in the first six months of 1997 from 44.0% in the first six
months of 1996. This increase was attributable to increased
initial markups resulting from the Sourcing Acquisition, and
lower markdowns associated with decreased promotional activities.
Selling, general and administrative expenses were
$150,370,000, which represented 39.4% of net sales, in the first
six months of 1997, compared to $140,283,000 or 37.7% of net
sales, in the first six months of 1996. The increase in expense
was primarily attributable to increased tenancy and store payroll
expense related to increased retail square footage.
As a result of the foregoing, the Company had operating income
of $28,100,000, or 7.4% of net sales, in the first six months of
1997, compared to operating income of $18,865,000, or 5.1% of net
sales, in the first six months of 1996. Amortization of goodwill
was $5,520,000 in the first six months of 1997 and $4,753,000 in
the first six months of 1996. Operating income, without giving
effect to goodwill amortization in either year, was $33,620,000,
or 8.8% of net sales, in the 1997 period and $23,618,000, or 6.3%
of net sales, in the 1996 period.
Interest expense was $10,573,000 in the first six months of
1997 and $12,331,000 in the first six months of 1996. The
decrease in interest expense is attributable to reduced
outstanding indebtedness in the first six months of 1997 compared
to the first six months of 1996.
The income tax provision was $9,792,000, or 56.8% of income
before income taxes and extraordinary loss, in the 1997 period,
compared to $4,519,000, or 64.9% of income before income taxes,
in the 1996 period. The effective income tax rate for both
periods differed from the statutory rate primarily because of non-
deductible goodwill amortization.
On July 2, 1997, the Company used available cash to prepay
$24,500,000, the outstanding balance of its term loan due
September 1998. This loan repayment will result in annualized
interest expense savings of approximately $2,200,000, and
resulted in an extraordinary charge to earnings in the first six
months of fiscal 1997 of $0.01 per share.
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<PAGE 12>
As a result of the foregoing factors, the Company had net
income of $7,287,000, or 1.9% of net sales, for the first six
months of 1997 compared to net income of $2,439,000 or 0.7% of
net sales, for the first six months of 1996.
Financial Condition
- -------------------
For the first six months of 1997, net cash provided by
operating activities totaled $56,706,000, primarily as a result
of non-cash operating expenses, a decrease in non-cash current
assets and an increase in current liabilities. Cash used for
investing activities during the first six months of 1997 amounted
to $14,000,000, for the purchase of property and equipment. Cash
used for financing activities during the first six months of 1997
amounted to $23,980,000, primarily attributable to funds used for
repayment of the term loan.
Accounts receivable decreased to $58,212,000 at August 2, 1997
from $63,605,000 at February 1, 1997, a decrease of $5,393,000 or
8.5%. This decrease is primarily attributable to a decrease in
Ann Taylor credit card receivables of $7,265,000 or 12.7%.
Accounts payable increased to $41,387,000 at August 2, 1997
from $34,341,000 at February 1, 1997, an increase of $7,046,000
or 20.5%, primarily due to timing of payments.
Merchandise inventories were $88,855,000 at August 2, 1997,
compared to inventories of $100,237,000 at February 1, 1997.
Total square footage increased to 1,732,000 square feet at August
2, 1997 from 1,705,000 square feet at February 1, 1997. On a per
square foot basis, merchandise inventories were 29.6% lower at
the end of the second quarter of 1997 than at the end of the
second quarter of 1996, excluding inventories associated with
AnnTaylor Global Sourcing.
At August 2, 1997, there were no borrowings outstanding under
either Ann Taylor's revolving credit facility or AnnTaylor
Funding, Inc.'s receivables facility. Ann Taylor can borrow up
to $122,000,000 under the revolving credit facility and AnnTaylor
Funding, Inc. can borrow up to $40,000,000 under the receivables
facility, depending upon its accounts receivable balance. Also
as of August 2, 1997, commercial and standby letters of credit
under AnnTaylor Global Sourcing, Inc.'s credit facility totaled
$37,583,000 and there were no borrowings outstanding under that
facility. This facility, which was scheduled to mature on July
29, 1997, was extended to January 30, 1998 and was increased to
$50,000,000, and is available principally for the issuance of
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<PAGE 13>
letters of credit; cash borrowings under the facility are
limited to a maximum of $5,000,000. In addition, the Company has
outstanding an aggregate of $100,625,000 of preferred securities
issued by its financing vehicle, AnnTaylor Finance Trust.
The Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation and
refurbishment programs, totaled $14,000,000 for the six months
ended August 2, 1997. The Company expects to open a total of 27
new Ann Taylor Stores and to expand 9 existing Ann Taylor Stores
in fiscal 1997.
Dividends and distributions from Ann Taylor to the Company are
restricted by the terms of the credit agreements relating to the
revolving credit facility and the receivables facility and the
Indenture for AnnTaylor, Inc.'s 8-3/4% Notes due 2000. The payment
of cash dividends by the Company on its capital stock is also
subject to certain restrictions contained in the Company's
guarantee of Ann Taylor's obligations under its bank credit
agreement. Any determination to pay cash dividends in the future
will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors
deemed relevant at that time by the Company's Board of Directors.
In order to finance its operations and capital requirements,
the Company expects to use internally generated funds, trade
credit and funds available to it under the credit facilities
described above. The Company believes that cash flow from
operations and funds available under these facilities are
sufficient to enable it to meet its on-going cash needs for its
business, as presently conducted, for the foreseeable future.
The FASB issued SFAS No. 128, "Earnings per Share", which
specifies the computation, presentation and disclosure
requirements for basic and diluted earnings per share. This
statement is effective for financial statements for periods
ending after December 15, 1997. The Company has determined that
this statement will have no material effect on the Company's
reported earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which requires that changes in
comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements.
This statement is effective for periods beginning after December
15, 1997. The Company has determined that this statement will
have no material effect on the Company's financial statements.
Also, in June 1997, the FASB issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related
Information", which addresses segment reporting, including, where
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<PAGE 14>
applicable, requirements to report selected segment
information quarterly and provide entity-wide disclosures
about products and services, major customers, and the material
countries in which the entity holds assets and reports revenues.
This statement is effective for financial statements for periods
beginning after December 15, 1997. Management currently is
evaluating the effects of this change on the Company's financial
statements.
Statement Regarding Forward Looking Disclosures
- -----------------------------------------------
Sections of this Quarterly Report on Form 10-Q, including
the preceding Management's Discussion and Analysis of Financial
Condition and Results of Operations, contain various forward
looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, with respect to the financial
condition, results of operations and business of the Company.
These forward looking statements involve certain risks and
uncertainties, and no assurance can be given that any of such
matters will be realized. Actual results may differ materially
from those contemplated by such forward looking statements as a
result of, among other things, increased competition in the
retail apparel industry; failure by the Company to accurately
predict customer fashion preferences; a decline in the demand for
merchandise offered by the Company; greater costs or difficulties
than expected related to the assimilation of the sourcing
functions and employees acquired in connection with the Sourcing
Acquisition; general economic conditions that are less favorable
than expected; the inability of the Company to locate new store
sites or negotiate favorable lease terms for additional stores or
for the expansion of existing stores; a significant change in the
regulatory environment applicable to the Company's business; an
increase in the rate of import duties or export quotas with
respect to the Company's merchandise; an adverse outcome of
certain litigation described under "Legal Proceedings" in the
Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997 that materially and adversely affects the
company's financial condition; or lack of sufficient customer
acceptance of the Ann Taylor Loft concept in the moderate-priced
women's apparel market.
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<PAGE 15>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
AnnTaylor Stores Corporation's 1997 Annual Meeting of
Stockholders was held on June 18, 1997. The following matters
were voted upon and approved by the Company's stockholders at the
meeting:
1. Mr. Gerald S. Armstrong and Ms. Hanne M. Merriman were re-
elected as Class III Directors of the Company for terms
expiring in 2000. 22,558,073 and 22,558,419 shares were voted
in favor of, and 267,799 and 267,453 were voted against or
abstained from voting on the proposal for the reelection of
Mr. Armstrong and Ms. Merriman, respectively. Mr. Robert C.
Grayson, Ms. Rochelle B. Lazarus and Mr. J. Patrick Spainhour
continued as Class I Directors with terms expiring in 1998,
and Mr. James J. Burke, Jr. and Ms. Patricia DeRosa continued
as Class II Directors with terms expiring in 1999.
2. An amendment to the Company's Amended and Restated 1992 Stock
Option and Restricted Stock and Restricted Unit Award Plan to
(i) increase by 1,500,000 the number of shares available for
option grants under the Plan and (ii) establish a maximum
number of shares with respect to which options, restricted
stock awards and restricted unit awards may be granted to any
employee was approved. 18,176,534 shares were voted in favor
of, and 2,648,424 were voted against or abstained from voting
on the amendment.
3. A proposal to amend and restate the Company's Management
Performance Plan to, among other things, (i) increase the
amount of the maximum individual award payable in any
performance period and (ii) expand the types of corporate
business criteria that the Compensation committee may consider
in establishing each performance period's performance goals,
was approved. 22,522,835 shares were voted in favor of, and
303,037 were voted against or abstained from voting on, the
approval of this proposal.
4. The appointment of Deloitte & Touche llp as the Company's
independent auditors for the 1997 fiscal year was ratified.
22,793,840 shares were voted in favor of, and 32,032 shares
were voted against or abstained from voting on, this proposal.
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<PAGE 16>
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits:
10.15.1 Amendment to the AnnTaylor Stores
Corporation Amended and Restated 1992 Stock
Option and Restricted Stock and Unit Award
Plan, as approved by stockholders on June
18, 1997.
10.16 AnnTaylor Stores Corporation Amended and
Restated Management Performance
Compensation Plan, as approved by
stockholders on June 18, 1997.
10.25.4 First Amendment to the Amended and Restated
Credit Agreement, dated as of April 11,
1997, between AnnTaylor Global Sourcing,
Inc. and the Hongkong and Shanghai Banking
Corporation Limited.
10.25.5 Second Amendment to the Amended and
Restated Credit Agreement, dated as of July
29, 1997, between AnnTaylor Global
Sourcing, Inc. and the Hongkong and
Shanghai Banking Corporation Limited.
(b) Reports on Form 8-K:
None.
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<PAGE 17>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AnnTaylor Stores Corporation
Date: September 12, 1997 By: /s/ J. Patrick Spainhour
-------------------- ---------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: September 12, 1997 By: /s/ Walter J. Parks
---------------------- --------------------
Walter J. Parks
Senior Vice President and
Chief Financial Officer